Georgia budget deficit likely to continue more than five years

WHAT IT MEANS: "Tax and fee revenues are not sufficient to support existing public-service levels."

ATLANTA - Georgians angered by teacher layoffs, state offices on furlough and jolting tuition increases should prepare for more than five years of the same, warn budget experts, because the state is in the clutches of a structural deficit.

Monthsafterthe economy entered recovery mode, state tax collections continued to fall. Only in the last two months have collections begun to rise.

A July report by Georgia State University put the term "structural deficit" on the tongues of legislators and state candidates. Slowly, voters across the state are hearing it, too.

"A structural budget deficit exists if, even in normal economic times, tax and fee revenues are not sufficient to support existing public-service levels, and thus the gap between revenues and expenditures will not 'naturally' close as revenue growth outpaces the growth in expenditure demand," wrote authors Carolyn Bourdeaux and David Sjoquist. "Such a deficit requires long-term policy changes to the revenue structure, as well as changes to the amount, type, or efficiency of public services provided, in order to close the gap."

They concluded the state will come up short $1.5 billion to $2.1 billion during each year well past fiscal year 2015.

Complicating matters is $1.6 billion in federal stimulus that money runs out when the current fiscal year ends next July. The hole it leaves isn't the only reason for the structural deficit because there are spending increases due to steady growth in the five programs funded on population, such as prisons, school and college enrollment, and Medicaid and PeachCare for Kids participation.

Liberal and conservative observers agree: since the most recent recession, the state's tax design doesn't bring in enough money to pay all of the expenses of state government. More than $4 billion has already been cut from the budget from when tax collections peaked in 2008.

Candidates running this fall will be offering solutions. Some conservatives are calling for new, radical cuts, like the 10,000 state workers Republican Karen Handel called for in her unsuccessful bid for the gubernatorial nomination.

Kelly McCutchen, president of market-oriented think tank Georgia Public Policy Foundation, says there are still cuts to be made through efficiency. He suggests borrowing ideas from other states like Texas, which has lower costs for its corrections system, and neighboring states that spend less per student but get better results.

"There are some tough decisions that have to be made, but we think it's a great opportunity," he said.

Cuts to such basic government programs aren't popular. Just the release of a list of how the University System of Georgia would cut only $300 million led to protests across the state.

Other advocates call for raising more money through taxes.

Without more revenue, the state will continue to operate with swamped social workers, crowded classrooms and reduced services, notes Sarah Beth Gehl, deputy director of the Georgia Budget and Policy Institute, a think tank in support of greater social spending.

"What level of services do we in Georgia want, and are we willing to pay for it?" she asks.

Observers on both ends of the spectrum see an opportunity in the work of a tax-reform commission of business leaders, economists and Gov. Sonny Perdue formulating recommendations for the legislature.

The commission's chairman, businessman A.D. Frazier, is upfront about the likelihood its recommendations won't leave taxes the same.

"I don't expect it to be revenue-neutral at all," he said. "We've got a gap in the state budget because of a loss of [federal] stimulus money."

Which taxes to change is the issue. The commission's first meeting had to be moved to a larger room to accommodate the 300 lobbyists planning to attend, retained to protect tax breaks dear to some company or industry.

One of the goals of the commission is to craft an overall tax scheme that will be attractive to all employers. Gubernatorial candidates Roy Barnes and Nathan Deal have their own suggestions of how to do that.

Businesses, though, see tax breaks as important to their decision to have jobs in Georgia, according to Peter Stathopoulos, a former Department of Revenue analyst who's now with the Atlanta accounting firm Bennett Thrasher. Stathopoulos advises companies on where it's most advantageous to locate, and he says they have shunned states that tried what Barnes and Deal advocate.

"I think states that say, 'hey, we have an overall low tax rate' haven't done as well as those that have targeted tax incentives," he said.

As candidates up and down the ballot take stances on these various policy options, voters trying to sort them out have a lot to consider.